China's economy cooled further last month, with industrial output, fixed asset investment and retail sales missing expectations as the government extended a crackdown on debt risks and factory pollution.

Beijing is already in the second year of a campaign to reduce high levels of debt as authorities worry that riskier lending practices, especially in the real estate sector, could imperil the economy.

Data on Tuesday suggested policy makers are making progress in defusing financial risks by weaning China off its years-long addiction to cheap credit, and signalled moderating growth over the next few quarters.

Fixed-asset investment growth also slowed to 7.3 percent in the January-October period, from 7.5 percent in the first nine months. Analysts had expected an increase of 7.4 percent.

"The moderation in activity data released today suggests that growth slowed in October and adds to our conviction that it will continue to do so in the quarters ahead," Nomura analysts wrote in a note to clients.

In the property sector, where authorities have tightened rules to flush out speculative financing that has helped drive a two-year boom, sales and new construction starts fell in October.

Property investment growth also cooled to 5.6 percent in October year-on-year, from 9.2 percent in September, Reuters calculated from National Bureau of Statistics data out on Tuesday.

“I think this (slowdown in real estate) is exactly what the government is looking to do. I don’t see them changing their policy course,” said Jonas Short, who heads the Beijing office at investment bank Sun Hung Kai Financial (SHKF).

SURPRISING STRENGTH

China's economy has surprised financial markets with robust growth of nearly 6.9 percent in the first nine months of this year, underpinned by a recovery in its manufacturing and industrial sectors thanks to a government-led infrastructure spending spree, a resilient property market and unexpected strength in exports.

That has supported the world economy as the Asian giant has continued to hoover up commodities and consumer goods, helping to stoke underlying global demand for cars and smartphones to TVs and industrial products.

And the overall picture backs the consensus view that the economy is entering a period of moderation rather than a rapid deceleration. China's producer prices, for instance, were surprisingly strong in October.

Alibaba, the Chinese e-commerce giant, said on Saturday it hit $25.4 billion in sales from China's Singles' Day - an annual 24-hour buying frenzy that exceeds the combined sales for Black Friday and Cyber Monday in the United States and acts as a barometer for China's consumers. The final sales total from the event was more than the GDP of Iceland or Cameroon.

QUALITY OVER SPEED

Since the third quarter, the world's second-largest economy has started to show signs of fatigue, with momentum seen slackening further as Beijing's crackdown on debt risks curbs demand and tighter pollution rules hits factory output.

China's exports and import growth both eased last month, while the smog war dragged on manufacturing activity and pulled average daily crude steel output down for a second straight month in October.

The latest data also showed consumers might be tightening their purse strings.

"But this support seems unlikely to last given that local governments are set to reduce spending in the final months of the year in order to meet budget targets."

At China's recently-concluded Communist Party Congress, President Xi Jinping said the country would focus on quality over speed as it pursues economic growth, and reinforced a pledge to win the war on pollution and clamp down on riskier types of lending.

Most China observers say Beijing would not risk a sharp slowdown in growth through its debt and pollution clampdown given the government's major focus on creating jobs and fostering social stability.

Monetary conditions have largely remained firm, with the People's Bank of China keeping liquidity tight through much of the year by raising short term rates. Growth is still expected to easily meet or beat the government's full-year target of around 6.5 percent for 2017.

"The economy is fundamentally strong in other areas...industrial production is only moderating, it’s still at really high levels," SHKF's Short said.

"There’s still some caution (on the economy), but we’re certainly not pessimistic. I’d say we are quite optimistic."